THE NEW GREAT GAME: EUROPE LOOKS WITHIN FOR ROOTS OF
RENEWAL
The
term “the Great Game” referred to the strategic rivalry between the BRITISH and
RUSSIAN empires in CENTRAL ASIA. Today’s Great Game is the battle for economic
survival in a world of low economic growth. In such a world economic
nationalism reasserts itself, reducing free trade in goods and services and
free movement of capital. Escalating sovereign debt and banking sector problems
will favour EUROPEAN introspection.
Individual
EUROPEAN economies are modest in size relative to the US. But as a single
entity the EUROPEAN UNION, including the 17-member EUROZONE, accounts for more
than 25 per cent of global GDP, making it the world’s largest economic unit.
The
EU is a more open economy, being the world’s largest exporter and importer of
good and services. But around 75 per cent of its trade is within member
nations, aided by removal of trade barriers and the common currency. For
example, GERMANY, the EU’s largest economy and one of the world’s largest
exporters, sells more than 60 per cent of its products within the EU, much of
it to other EUROZONE members.
The
union is largely self-sufficient in food, thanks in part – as in the US – to
subsidies, minimum price schemes and trade restrictions which favour farmers.
The EU is a net energy importer, although mutually beneficial strategic
agreements with RUSSIA and other neighbouring countries rich in energy can
provide security of supply. Significant potential natural gas finds in the EASTERN
MEDITERRANEAN may emerge as a source of energy for EUROPE.
Background Information:
ENERGY
HOTSPOT: EASTERN MED
COULD IT BE THAT THE
TROIKA IN REALITY FOCUSES ON TAKING CONTROL OF CYPRUS’S PROCLAIMED HYDROCARBON
FINDINGS?
EUROPE
has many of the requirements of a closed economy. The need for greater
integration to deal with its debt problems may be the catalyst for the shift to
autarchy.
As
a unit, the EUROZONE’S current account is nearly balanced, its trade account
has a small surplus, the overall fiscal deficit is modest and the aggregate
level of public debt, while high, is manageable. But individual members of the EUROZONE
vary widely in terms of income, public finances, external account and debt
levels. Greater integration would help resolve some of these variations.
However,
it would necessitate a net wealth transfer from richer to weaker members.
Stronger, more creditworthy members would also have to underwrite the
borrowings of weaker nations – something that net lenders such as GERMANY,
FINLAND and NETHERLANDS are opposed to.
But
even without agreement on EUROZONE bonds, de facto mutualisation of debt will
take place. As more financing for weaker nations moves to official institutions
such as the EUROPEAN Central Bank and bailout funds, the commitment of stronger
countries, especially GERMANY and FRANCE, increases. They implicitly assume the
liabilities of weaker members of the EUROZONE.
If
the EUROZONE fragments, it will morph into a smaller version of itself,
probably consisting of stronger core nations and some smaller entities. Nursing
large losses and a significant diminution of wealth, survivors are likely to
favour autarchical policies to restore economic health.
Economic
difficulties are driving secessionist movements within EUROPE. While ethnic and
political identity is the primary driver, an emerging factor is financial.
Catalan nationalists argue that the region is financially burdened by being
part of SPAIN – which they say absorbs 8 per cent of Catalonia’s GDP, or about
€16bn (£14bn) – and would be better off as an independent entity. As SPAIN implements
a harsh austerity program, Catalans, facing sharp cutbacks in public services
such as health and education, are convinced that independence would restore
their economic fortunes.
Separatist
movements are also active in many other EUROPEAN nations. The pressures for
secession complicate international economic relationships and the reshaping of
the global trading system, forcing a narrow domestic focus.
Irrespective
of its policy choices, EUROPE faces a prolonged period of economic stagnation
as it works off its debt burden and undertakes major structural changes to
correct imbalances. During this transition, EUROPE will be forced to focus
internally, husbanding savings and wealth needed to absorb the large debt
write-offs required. Explicit or implicit capital controls and trade restrictions
are natural policy measures to assist in this adjustment, marking a shift to a
more closed economy.
I guess next September meeting of the G-20 in Russia will set some existential dilemmas to Europe: officially or unofficially, Europe will be asked to choose, either to align with the Anglo-Saxon axis, or else...
ReplyDeleteI wonder why Germany is still a member of NATO. In my opinion, it goes against its own interests.
Congratulations for a fine, informative web site.
Astroboy (http://astroboy-en-multiverso.blogspot.com.ar)